MSCI Inc. — Q1 2021 Form 10-Q
Business context and period: MSCI provides indexes, analytics, ESG and climate solutions, and real-estate and private-assets tools to institutional investors. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020. Amounts below are USD millions unless stated otherwise.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $478.4 | $416.8 | +14.8% (+14.0% excluding FX) |
| Operating income | $254.4 | $207.9 | +22.4% |
| Operating margin | 53.2% | 49.9% | +3.3 percentage points |
| Adjusted EBITDA (non-GAAP) | $276.6 | $229.2 | +20.7% |
| Adjusted EBITDA margin (non-GAAP) | 57.8% | 55.0% | +2.8 percentage points |
| Net income | $196.8 | $148.1 | +32.9% |
| Diluted EPS | $2.36 | $1.73 | +36.4% |
| Operating cash flow | $215.5 | $112.8 | +$102.7 |
Revenue growth was led by asset-based fees, up 26.5% to $126.7 million, and recurring subscriptions, up 10.9% to $337.7 million. Average ETF assets linked to MSCI equity indexes rose 33.3% year over year to $1.169 trillion. Segment revenue growth was: Index 17.3% to $292.5 million; Analytics 6.8% to $134.0 million; ESG and Climate 37.7% to $34.8 million; and All Other—Private Assets 2.3% to $17.2 million. ESG and Climate Run Rate increased 42.0%; total Run Rate rose 18.4% to $1.899 billion.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $1.747 billion at March 31, 2021, up from $1.301 billion at year-end 2020. Operating cash flow was $215.5 million; investing activities used $10.4 million and financing activities provided $245.5 million.
- Senior notes had $3.9 billion aggregate principal outstanding at quarter-end; carrying value was $3.866 billion. The revolving credit facility was undrawn, with $500 million available. The reported consolidated leverage ratio was 3.53x versus a 4.25x maximum, and interest coverage was 7.57x versus a 4.00x minimum.
- On March 26, MSCI issued $500 million of additional 3.625% notes due 2030. On April 12, after quarter-end, it redeemed all $500 million of 4.75% notes due 2026, paying $518.2 million including premium. The redemption is expected to produce an approximately $21.8 million loss in Q2 2021.
- Q1 share repurchases were $134.3 million; $1.594 billion remained authorized. The Q1 dividend was $0.78 per share. A further $0.78 quarterly dividend was declared April 26, payable May 28, 2021.
Material changes, commentary and risks
- Revenue growth exceeded expense growth: operating expenses rose 7.3%, while operating margin expanded. Management attributed margin improvement to revenue growing faster than Adjusted EBITDA expenses.
- Net income benefited from a low 8.9% effective tax rate, which included $22.3 million of favorable discrete tax items, primarily $20.4 million in excess tax benefits on vested share-based compensation.
- Net new recurring subscription sales increased 45.7% to $33.6 million; total retention rate was 96.3%, compared with 95.0% in Q1 2020. These are company-defined operating metrics.
- BlackRock represented 12.0% of consolidated revenue, versus 11.3% in Q1 2020, and 19.2% of Index segment revenue. This is a notable customer concentration.
- Management said cash, operating cash flows, available credit and access to capital markets should be sufficient for operating needs and commitments for at least the next 12 months. The filing provides no specific earnings or revenue guidance.
- Risks include foreign-exchange exposure (15.0% of Q1 revenue was subject to FX risk), market-driven ETF asset values and flows affecting asset-based fees, and ongoing tax examinations. Management reported no material change to previously disclosed risk factors. Ordinary-course legal matters remain uncertain, though management did not expect their disposition to have a material effect based on information available.
- The ESG and Climate business became a separate reportable segment effective January 1, 2021; prior-period segment figures were recast. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of asset-based fee and Run Rate growth reflects market appreciation versus net inflows, and how changes in fee levels may affect future revenue.
- Whether subscription sales, retention and ESG and Climate growth continue, and how segment expense growth develops.
- The Q2 impact of the April 2026-note redemption, including the expected $21.8 million loss and resulting debt and interest-cost profile.
- The sustainability of reported earnings and margins given favorable discrete tax benefits and share repurchases.
- Developments in tax examinations, customer concentration and foreign-currency exposures.